Looking for love in all the wrong places: two takes

Henry Paulson, a Wall Street insider now slated to rescue Wall Street from its own logic, and capitalism from its own dynamic.

By Corey D. B. Walker | [print_link]

“The West is living through an economic and social crisis so unprecedented in its tempo, so complex in its effects, that there are many who do not know that it is taking place.”
— Michael Harrington, The Next Left (1987)

The nationalization of American International Group and the continuing turmoil in the economy have forced many Americans to take a second look at some of the complex issues facing capitalism in the new millennium.

While mainstream opinion continues to vacillate between the approved economic dogmas of market correction and increased regulation, few have proffered any critical analysis of the structural crisis in the latest phase of capitalism.

The glaring absence of any such consideration in mainstream opinion is to be expected given the ideological blindness — not to mention complicity — of mainstream and business media in promoting the absolute supremacy of free market capitalism. But the deafening silence of many progressive media outlets on the systematic nature of the crisis is deeply troubling.

While the 2008 presidential election has justifiably received a great deal of attention and has been the subject of a substantial amount of political commentary, it should not be the case that progressives remain silent in light on the tremendous crisis engulfing capitalism in our moment. Nor should progressive analysis of the current economic crisis be framed by a cult of personality critique that places full blame on the rogue Bush-Cheney regime.

Nader is one of the handful of lonely voices denouncing the latest bailout as an exercise in costly band-aid measures for a system whose very internal dynamic leads to ever graver recurring crises.

If progressivism is to mean something more than just a euphemism for center-left Democrats or more than the latest Democratic branding strategy in light of the decades long conservative assault on the term liberal, then progressives must articulate a substantive critique of what John Bellamy Foster terms “monopoly finance capital.”

What this means is that analyses of the current economic crisis should be grounded in the long term view of the increased growth and influence of the monetary and financial aspects of capitalist political economy since the mid-1960s and the evolution of this transformation throughout the decades of the 70s, 80s, 90s, and the opening decades of the millennium. As economist James Crotty noted in 1985:

[I]t is evident that monetary and financial problems have been and continue to be at the very center of the recurring economic crises that have afflicted most capitalist economies in the past fifteen to twenty years. These economies have experienced roller-coaster inflation, secular stagnation, domestic credit crunches, and recurring waves of bankruptcy. . . . The business press asks with regularity if an international financial collapse of depression-producing magnitude is very likely, or only moderately likely: the answer changes from time to time.

In this phase, capitalism represents nothing less than what Paul Baran and Paul Sweezy aptly describe as a “gigantic system of speculating, swindling, and cheating.” Thus, the economic landscape has been marked by such developments as the deregulation of the savings and loans industry under President Carter, the 1979 bailout of Chrysler, the collapse of over seven hundred saving and loan associations in the 1980s, the Asian financial crisis of the 1990s, the bursting of the tech bubble in 2000, and, of course, the devastating economic crises of the new millennium populated by names such as Enron, WorldCom, Bear Sterns, Lehman Brothers, and the list goes on.

The dominant responses to the current upheaval in the financial markets have been met with calls for more explicit and robust regulatory controls. Among other things, this rhetorical strategy fundamentally reaffirms the foundational principles and core correctness of market capitalism while offering an explanatory rationale that places blame on a few unethical individuals and rogue institutions. Moreover, it fails to shed light on the convergence of interests of business and political elites as well as the ongoing class war that has eviscerated the ranks of unionized labor, stagnated wages, and casualized workers across all sectors of the economy.

It may not be opportune to begin such discussions in final days of a closely fought presidential campaign.

However, if progressives ignore the deep and systemic crisis of capitalism that, at best, marginalizes the lives, dreams, and hopes of the majority of American citizens, progressivism in the 21st century will not only be impoverished, but will also be part of the problem and not the solution to the general crisis of democracy in America.

Economic Crisis, Ideological Debates
In US capitalism’s greatest financial crisis since the 1930s Depression, status-quo ideology swirls. The goal is to keep this crisis under control, to prevent it from challenging capitalism itself. One method is to keep public debate from raising the issue of whether and how class changes — basic economic system changes — might be the best “solution.” Right, center, and even most left commentators exert that ideological control, some consciously and some not. Hence the debates where those demanding “more or better government regulation” of financial markets shout down those who still “have more confidence in private enterprise and free markets.” Both sides limit the public discussion to more vs less state intervention to “save the economy.” Then too we have quarrels over details of state intervention: politicians “want to help foreclosure victims too” or “want to limit financiers’ pay packages” or want to “weed out bad apples in the finance industry” while spokespersons of various financial enterprises struggle to shape the details to their particular interests.

We need to recall that crises always generate “solutions” — like all those above — that preserve the basic system. We also need to advance alternatives not subordinated to the status quo, that open up the discussion by showing the risks of not changing the system and the virtues of doing so.

Let’s begin with the issue of government regulation. Note first that corporations like investment banks, commercial banks, stock and mortgage brokerages, and so on are all run by boards of directors. These boards — usually numbering 15 to 25 people — make all basic corporate decisions. They hire the millions who do the work, and they tell these employees what to do with the tools and equipment they provide. Today’s financial mess and economic crisis are first and foremost results of decisions by these boards of directors.

In previous economic crises — especially the 1930s Depression — financial corporations were subjected to government laws and regulations passed under pressure of mass suffering. However, the politicians who wrote those laws and regulations soon thereafter allowed financial corporations to evade them, then later to amend them, and finally to eliminate many of them. Politicians accommodated financial corporations because they were major contributors to their campaigns and major supports of their political careers or because they believed government intervention to always be “bad” for economic wellbeing. Financial corporations’ directors used profits also to hire armies of lobbyists who shaped every government step in deciding whether and how to enforce laws, rewrite regulations, etc. Thus, US regulators depended increasingly on the financial corporations they supposedly regulated. Nor should we forget the profits financial corporations have always devoted to “public relations” — costly campaigns to undermine the very idea of government regulation in school curricula, mass media, politics, and across our culture. So now we return to square one as deregulated finance — having done its job of making billions for the industry — produces another crisis and another set of calls for regulation.

In short, arguing over whether to leave finance to financial corporations or to have government regulate them is no real debate. In the US, financial corporations’ boards of directors have dominated the operations of the financial industries either way. Since all regulations imposed on US financial enterprises have left their boards of directors as sole receivers and distributors of all profits, the boards used them to evade or gut the regulations. What the right, center, and left now debate is merely another set of regulations all of which again leave untouched the profits accruing to financial companies’ boards of directors.

Finance has been grossly mismanaged by the institution of the corporation under deregulation: hence the crisis. Responding to this fact requires more than government reregulation. We need also to change the corporation in basic ways that can avoid or correct financial mismanagement. Nothing could better assure that new and tougher government regulations might work this time than making the workers inside financial corporations real partners with the government in monitoring and enforcing properly regulated financial activities.

To that end, we propose a radical restructuring of financial corporations. Their employees at all levels must become major participants in decision-making activity. That means elevating workers to significant membership on boards of directors and all board committees. Only then can employees know corporate realities and so make sure financial activities conform to the spirit and letter of regulations. Only then will inappropriate activities get reported to and investigated by regulators long before they accumulate into today’s sort of crisis. Masses of employees institutionally empowered inside corporate decision-making are the nation’s best hope for a better, fairer financial system than we have had to date.

In short, if the US government — ultimately the tax-payers — will now pay the costs and take the risks to bail out a failed financial system, then it has the right and obligation to change that system. We need such changes to avoid repeating the failures of the past. These changes would also introduce some democracy inside the corporation — where it has been excluded for too long and with disastrous consequences.

The current debates also fail to face how the underlying economy helped produce the financial mess. Real wages stopped rising in the US in the 1970s, yet the American psyche and self-image, subject to relentless advertising, was committed to rising consumption. To enable that, workers with flat wages had to borrow to afford rising consumption. For the last 30 years loans replaced wages, but rising consumer debt introduces new risks and dangers. If, simultaneously, politicians use state borrowing to avoid taxing the rich while providing vast corporate subsidies and waging endless wars, the debt problems mushroom. Aggressive, deregulated financial companies grabbed the resulting “market opportunity” by devising ever more complex, hidden, and dangerously risky ways to profit hugely from the social debt bubble.

A sub-prime economy produced sub-prime wages, sub-prime borrowers, sub-prime lenders, and sub-prime government regulation. Bailing out and reregulating financiers — the current plan being debated across the nation — does far too little too late. The proposal above exemplifies the much bigger and more basic changes that now need active public discussion.